Down Payment Shouldn't Scare Off Home Buyers From Today's Market

By AARON TAYLOR

When Lawrence Yun begins one of his economic or housing market briefings real estate professionals sit up and take notice. So, do others who sift through all the economic punditry that floods media for solid data and fact-based observations. Mr. Yun, chief economist and senior vice president of research at the National Association of Realtors®(NAR), is ranked as one of the top economists in the nation and is a sought-after presenter.

Aaron Taylor
2018 NETAR President

e offered some of his observations in Kingsport recently at a NAR Region 4 meeting at the MeadowView Resort and Conference Center. At first, one of his talking points was a little surprising in the company of discussions about things like the Gross Domestic Product or the effects of tariffs on the new home industry. That surprising topic was his advice that real estate professionals stress that a 20% down payment to buy a home is not the norm and that other options should be the focus - especially for first-time buyers.

The problem is Millennials who would like to buy a home constantly hear about rising prices and the 20% down payment. They look at those higher prices and the down payments, get discouraged and resign themselves to renting, he said.

He's right. And there are ample examples of better options.

For example, according to Attom Data Solution's Q4 Down Payment Report, buyers in Sullivan and Washington counties make the lowest down payments in East Tennessee metro areas. The median down payment in three-county Johnson City Metropolitian Statistical Area (MSA) was 3.1%. In the Kingsport-Bristol MSA, it was 2.4%. Looking at the average and median down payment dollars broadens today's market realities.

The average Johnson City MSA down payment during the last three months of 2017 was $20,333. But the median – the point where half of the down payments were higher, and half were lower – was $4,500. In the four-county Kingsport-Bristol MSA, the average down payment was $18,333, and the median was $3,297.

That puts down payments in a different light, doesn't it?

There are many options for buyers that shouldn't get lost in the 20% down payment myth.

Mr. Yun and Congressman Phil Roe, who also spoke at the meeting, pointed out that veterans can get VA home loans with no down payment.

The Tennessee Housing Development Agency also has a variety of programs for buyers, and there are some especially attractive grants for buyers in Unicoi County and the 37660-zip code in Sullivan and Hawkins counties. THDA Executive Director Ralph Perrey also recently told members of the Tri-Cities Mortgage Bankers' Association that THDA will be rolling out a conventional loan product next year.

And buyers shouldn't overlook their options from Eastern 8 or U.S. Department of Agriculture. That's right, a lot of the areas in Tri-Cities are eligible for USDA loans.

The point is there's a wide range of loan products and programs tailored to help first-time buyers and others who are looking for affordable housing.

It's true that if a buyer has a 20% down payment, they get a better interest rate and don't have to buy private mortgage insurance. But even with the recent mortgage rate increases what's available now is a bargain compared to the historic average. It will be a different story when mortgage rates get back to the 7% range, but even with steady increases forecast for this year the outlook is for at - or just under - 5% by the end of this year.

There's also a wealth of data that will show that a mortgage on a median-price home in the Tri-Cities region is less expensive that the average rents.

Currently, one of the biggest challenges is not affordability or finding the right program or loan product for buyers. Availability is the biggest challenge. Inventory is tight, and there's more competition among buyers. But that's where partnering with a professional Realtor® comes into the equation. They are the local experts on what's available and what's becoming available.

Aaron Taylor is the 2018 president of the Northeast Tennessee Association of Realtors. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and almost 100 affiliates